Short answer: Paying only the minimum keeps your card in good standing but charges interest on the rest. In our example, a 50,000 balance at 3.5% a month takes almost 11 years and 91,021 in interest to clear on minimum payments alone.
The minimum amount due is the smallest payment that avoids a late fee. It does not avoid interest.
How card interest works
If you pay the full statement balance by the due date, most cards charge no interest on purchases. If you pay anything less, interest is charged on the unpaid balance, and on most cards you also lose the interest-free period on new purchases until the balance is cleared.
Card interest is often quoted per month. A rate of 3.5% a month is 42% a year before compounding, and about 51% once compounded. Rates vary widely by country and bank, so check the monthly rate on your statement.
A worked example
A balance of 50,000, at 3.5% a month, with a minimum payment of 5% of the balance (at least 500):
- Paying only the minimum: about 131 months (almost 11 years) to clear, with 91,021 in interest. That is more interest than the original balance.
- Paying 5,000 a month: 13 months, with 12,633 in interest.
Warning: Cash withdrawals on a credit card usually start charging interest immediately, plus a fee, even if you pay the bill in full.
Getting out of card debt
- Stop adding to the balance. Use a debit card or cash until the card is cleared.
- Pay a fixed amount, well above the minimum. A fixed amount clears the debt far faster than a minimum that shrinks as the balance falls.
- Consider cheaper borrowing. A personal loan at a lower rate can replace card debt, if you don't run the card up again.
- Set up full automatic payment. Once clear, pay the full balance every month to never pay card interest again.
Questions people ask
Q: Does paying the minimum hurt my credit score?
A: Paying on time helps your record. But a high balance relative to your limit can still count against you, and the interest cost is large.
Q: What is the interest-free period?
A: The time between a purchase and the payment due date, often between about 20 and 50 days depending on the card and when you buy, during which no interest is charged if you pay the full balance.